Rules on 401(k) plans are changing

Updated 8:02 pm, Monday, March 26, 2012

On July 1, the rules governing every 401(k) and private pension plan in the United States are going to change. Concerned with the fees paid by retirement plan participants, the Department of Labor is implementing measures to make plan fees more transparent, enabling plan fiduciaries and participants to better understand, monitor and control those fees.

Many consider these sweeping disclosure requirements to be the biggest thing to hit benefit plans in the last 15 years. So what does all of this mean for you?

A plan sponsor — in other words, the employer who offers the plan for its employees — must engage in a prudent process when selecting service providers (the companies that provide retirement plans to employers) to ensure that the plan is paying reasonable fees for necessary services. The law does not require the plan to select the cheapest service provider, but it does require that the employer gather the information necessary to understand all the plan's costs and fees.

Employers/plan sponsors and service providers must change their existing processes to ensure that the appropriate disclosures have been requested and received. Employers may think, “I'm just a plan sponsor. My service provider will take care of us. Why should I care?”

Under the regulations, these are required disclosures. The providers must clearly outline the fees, and the employer must pay attention to the information. If any information is missing, the employer/sponsor must request that information in writing from the service provider. If the request is not answered within 90 days, the employer/sponsor has an obligation to notify the Department of Labor.

The regulations are designed to make plan participants aware of the cost of their plans.

A second important date is Aug. 30, the date by which all plan participants must receive information from the employer/plan sponsor outlining the fees connected with their plan. After that, the information is to be supplied quarterly.

The Department of Labor wants companies to review their plans periodically to make sure that the participants are treated fairly.

Employers/plan sponsors must pay attention. You have a responsibility to review the fees the plan pays: The less spent on fees, the more plan participants earn.

Employers/plan sponsors are supposed to be good stewards of the participants' money, but it hasn't been easy to know the full costs associated with the plans — until now, making this a good time to review your plan.

Plan sponsors traditionally review fund performance. Fee disclosure will now allow you to look at the true cost of your plan as well. This is not a mandate of the regulation, but since you're getting this information, you should do something with it.

Can you document that you shopped the market and made sure this was the best choice for your participants? If you can, you're on your way to fulfilling your fiduciary responsibility.

Start working with your service provider now to make sure you receive all the information you need by July 1.